Investing in stocks is one of the fastest ways to become a millionaire. Warren Buffett is a good example of a multi-billion dollar investor. To be a successful investor like Warren Buffet, you must first understand his beliefs about the market and his investment strategies.
1. The market is irrational
Warren Buffett believes that the market is irrational. It is often driven by greed and fear. Do you know people who buy when the market is up and sell when the market is down? Or are you one of them? If you have done your research and understand the true value of the stocks you have purchased, you will feel confident and will no longer worry when prices go up and down.
2. No one can consistently predict the market
Take a moment to remember, have you heard stories about someone spending money to buy mysterious trading systems, hoping for a good profit but only to be disappointed? Average investors try to predict the next market move. When they can’t predict, they give money to so-called experts who claim they can. Warren Buffett believes that a successful investment has nothing to do with the ability to predict. Savvy investors know that no one can consistently predict the market.
3. Big benefits with little risk
While many people talk about “high risk, high return,” Warren Buffett believes in high returns with little risk. In fact, Warren Buffett is a very risk-averse investor. His first rule for investing is “Never lose money” and his second rule is “Never forget the first rule.” People think that investing is high risk because they have not learned how to do it correctly. Like driving, don’t you think it’s risky to drive on the highway if you haven’t learned to drive properly? Knowing the right way to do it can significantly reduce your risk.
4. Invest in a few great companies
Most investors are taught to “diversify, diversify, diversify.” So they bought a lot of mutual funds and have small stakes in many stocks. Warren Buffett believes that diversification is for people they don’t know well. By investing in the entire market, you will go up and down with the market. The key to outperforming the market is identifying great companies and focusing your investments on them.
5. Make decisions based on strict criteria
Many investors make decisions based on emotions. They are tempted when they hear interesting tips or see their friends making quick profits. They then sell immediately when they see the stock price drop the next day. Successful investors follow a strict set of criteria to determine when to buy and sell. Investment criteria are rules that you follow to decide which stocks to buy, when to buy, and, after buying, when to sell. Here are some examples: the business must have increasing sales and profits over the past 5 years, return on equity must be greater than 15%, long-term debt must be less than 3 times net income, etc.